Home Prices Stay High Amid Supply Shortages and Mortgage Lock-In

Home prices have remained elevated despite a sharp rise in borrowing costs, reflecting a market constrained more by supply than demand. After the Federal Reserve’s rate hikes that pushed mortgage rates above 7% in 2023, home sales declined significantly.

However, prices did not follow the same downward trajectory. By early 2026, existing-home sales were running at a 3.91 million annual pace, while median list prices remained relatively stable year-over-year. Similarly, Case-Shiller data continued to show annual price growth, indicating that values have held even as transaction volume declined.

The structural housing shortage

A key factor supporting home prices is a long-standing shortage of housing inventory. According to Realtor.com’s housing supply gap analysis, the US faced a deficit of approximately 4.03 million homes in 2025. This gap reflects more than a decade of underbuilding relative to household formation.

The limited availability of homes is also reflected in the homeowner vacancy rate, which stood at 1.2% in late 2025, well below historical norms. With few properties sitting vacant and available for purchase, even a modest level of demand can sustain pricing. For real estate professionals, this means that reduced sales activity does not necessarily signal price declines when the underlying supply remains constrained.

How the lock-in effect limits supply

While the housing shortage predates recent rate increases, higher mortgage rates have reinforced supply constraints through the lock-in effect. Many homeowners secured mortgages at historically low rates during 2020 and 2021. Selling a home today would often require financing a new purchase at a significantly higher rate, increasing monthly costs.

Research from the Federal Housing Finance Agency (FHFA) shows that for every percentage point increase between a homeowner’s existing mortgage rate and the current market rate, the likelihood of selling declines by 18.1%. The FHFA estimates that this dynamic prevented more than 1 million home sales between 2022 and 2023 and contributed to upward pressure on prices.

Even as rates have moderated, the gap remains meaningful. As of April 2026, Freddie Mac reported the average 30-year fixed mortgage rate at 6.37%, leaving many homeowners financially disincentivized to move.

Inventory gains that don’t translate to affordability

Recent increases in inventory have not significantly improved affordability. In January 2026, active listings rose 10% year-over-year, yet they remained below pre-pandemic norms. At the same time, new listings increased only 0.7%, indicating that the number of homeowners entering the market has changed little.

This distinction is important. Rising active inventory can reflect homes staying on the market longer rather than a meaningful increase in supply. Without a sustained rise in new listings, the overall inventory base remains limited, which helps maintain price stability.

The impact on buyer access and market mobility

The combination of high prices and elevated mortgage rates continues to affect buyer access, particularly for first-time purchasers. According to the National Association of Realtors, first-time buyers accounted for just 21% of home purchases in 2025, and their median age rose to 40.

At the same time, existing homeowners are moving less frequently, reducing overall market mobility. This dynamic limits opportunities for both entry-level buyers and move-up purchasers, reinforcing the broader supply constraint.

Why prices remain supported

Home prices remain high because two forces are working together: a structural housing shortage and a lock-in effect that discourages existing owners from selling. While demand has moderated compared to recent peaks, supply has not increased enough to rebalance the market.

For real estate professionals, this environment requires careful interpretation of market indicators. Declines in sales volume or increases in time on market do not necessarily signal falling prices. Instead, they often reflect a market where both buyers and sellers are constrained, and where limited inventory continues to set the baseline for home values.

Until either construction meaningfully expands or mortgage rates fall enough to ease the lock-in effect, the conditions supporting elevated home prices are likely to remain in place.